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Article: House prices: should we care?
- Article from:
- Investors Chronicle - magazine and web content
- Article date:
- November 8, 2007
CopyrightCOPYRIGHT 2007 FT Business. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The link between house prices and the economy or stock market is weak Chris Dillow
Let's assume the scare stories are right, and that UK house prices will fall next year. Why should we care?
This chart suggests an obvious reason - there's a strong correlation between house prices and consumer spending. Lower house prices mean less spending. With consumption accounting for over three-fifths of GDP, this suggests a slump in the housing market could tip us into recession.
Economic research has corroborated what our eyes tell us. Yale University's Robert Shiller says there's a "rather large effect" of housing wealth on spending, with a 10 per ...